An omnibus account is a large, aggregated, combined account used by financial intermediaries such as banks, brokers, and 401(k) administrators. This account, which became important in the 1990s, is shared between those intermediaries who aggregate their clients’ orders into a single account and in this way offer them two major advantages.
First, trade activity is shared in a single account from multiple participants, making it difficult to identify individual shareholder’s activity, so protecting their individual identities (Levine, 2006).
Second, these accounts have been largely exempted from redemption fees (Goar, 2004) and misused by some financial intermediaries. For example, this second point was combined for some 401(k) administrators with the advantages of the 401(k) plan to achieve exemption from redemption fees and to gain tax-free benefits.
In this respect, the Securities and Exchange Commission (SEC), fighting for a transparent market, adopted Rule 22c-2 on March 2005, which imposes a fee if a fund redeems its shares within 7 days. In addition, it is very difficult and expensive for the fund industry to make this rule technologically feasible because each order for individual share trade information would need to be monitored.
In particular, omnibus accounts would not allow aggregation of the dealings and present them at the end of the day as a single dealing because they must show each shareholder’s identity and transaction information.